Can't Raise Money, Can't Sell Themselves: Second-Tier Bike-Sharing Brands Ran Out of Options in Under a Year

Four companies have already announced they are shutting down, and four more have failed to return deposits on time.

Beijing's scalpers never lack for business. Lately they have picked up a new line of work: collecting bike-sharing deposits for other people.

The office tower at Beijing's Tongzhou Wanda Plaza has eight passenger elevators. To make things easier for people coming to get their deposits back, one of them runs only to the 30th floor, straight to the headquarters of Coolqi Bike. An officer from the local police station stands at the elevator door.

Coolqi, known for its "gold-plated bikes," charges a 298-yuan deposit. Refunds became hard to get in August, and by late September users had to show up in person to get their money back.

Users who couldn't reach the Beijing headquarters grew anxious, and turned to Baidu Tieba, Weibo, QQ groups and other social media to ask someone to register their information for them.

People who stood in line on others' behalf charged 20 yuan at first. As the Coolqi story spread and the crowd seeking refunds grew, the price climbed — 35 yuan, 50 yuan, 80 yuan, and at its peak 120 yuan.

The queue peaked in late September, with close to a thousand people in it, scalpers and users combined. The line spilled out of the plaza and wound around it again and again.

On October 1, Coolqi put up a notice board: only the account holder, ID card in hand, could register in person, and no one could do it on someone else's behalf. A customer-service worker handling registrations on site told QDaily that users outside Beijing would have to wait for the Coolqi app to be repaired and upgraded, after which refunds would work normally.

Asked when people could apply for refunds normally, she said, "I don't know. I'm just customer service."

Ostensibly this was a crackdown on scalpers. It looked more like a way to hold down the number of refunds. By October 10, fewer than 10 people were lining up for a refund that day.

The last time Coolqi drew this much attention was in June, when it launched the gold-plated bikes and flooded WeChat Moments.

Coolqi CEO Gao Weiwei said at the time that the company would put more than 8 million bikes on the street within six months and enter 10 overseas markets.

Less than three months later, it couldn't return users' deposits.

After the run on deposits began, Gao said Coolqi had just over 50 million yuan in its accounts but owed users more than 300 million yuan and suppliers more than 200 million yuan — more than 500 million yuan in all. He said he had been chasing investment since July, and had even approached Mobike and Ofo about an acquisition. Both said no.

Several third-party data providers put Coolqi among the top three bike-sharing companies, behind only Mobike and Ofo.

Going by the 14 million users Coolqi claimed after the gold-plated bikes appeared, it had collected more than 4 billion yuan in deposits. The rules require a third party to hold deposits in escrow, and Coolqi had signed an agreement with China Minsheng Bank to do exactly that. But Gao told Lieyunwang in an interview that the agreement was only signed — it was never actually connected to anything.

Coolqi remains a puzzle. On September 28, its official WeChat account published a statement firing Gao Weiwei as CEO, saying his management ability fell short.

The next day, Coolqi reposted on WeChat a report by The Paper: "Coolqi Bike will be acquired by a Sichuan group for 1 billion yuan." The source of the news was the CEO who had been removed the day before. Nobody knows how much of it was true.

One piece of background keeps coming up: Coolqi shares a founding team with a peer-to-peer lender called Chengxindai. That company's office is also on the 30th floor of the Wanda Plaza office tower in Tongzhou, Beijing, directly facing Coolqi's.

Gao said repeatedly that the two companies had nothing to do with each other, describing himself as a man who starts a business in whatever field happens to be hot.

But the whole Coolqi project looks like one enormous peer-to-peer lending scheme. In the office where Coolqi processes refunds, a long banner still hangs: "A warm welcome to partners visiting headquarters to study and learn."

"Partners" is Coolqi's franchise scheme. A partner takes 2,000 bikes, booked at 1 million yuan, and pays Coolqi back over three years at an annualized rate of 24%. Coolqi even did the arithmetic for them: if each bike is ridden 5 times a day at 0.3 yuan a ride, that is 90,000 yuan a month; after principal and interest, the partner clears 42,000 yuan a month. Money for nothing.

On the site where partners signed up, Coolqi wrote it plainly: "Zero investment, zero risk — become a millionaire in two years."

In under a year, Coolqi reached 200 cities, half of them through franchisees.

But now, before the partners could hand over their fat interest payments, Coolqi could no longer keep the business running.

When a QDaily reporter visited Coolqi's headquarters, the whole 30th floor was dark except for the office processing deposit refunds. Coolqi's door and Chengxindai's door across the hall were both shut tight, and the front desk was bare. Chengxindai had even pulled down its nameplate, and its lights were off.

"Speed faster than light, astonishing output per head, godlike corporate strategic vision." "Coolqi: the world's largest internet mobility platform, changing China and influencing the world." Sheets of paper taped to the office's glass walls carried slogans like these.

More than a million users still have no refund. They turn up again and again in social media groups, asking one another "when exactly can we get the deposit back."

Every so often someone appears posing as a Coolqi employee, collects everyone's details, and offers to rush a refund through for 20 yuan. Once the group works out he is a swindler, they curse him and throw him out — and then, still not satisfied, go back to cursing Coolqi for a crooked company.

Second-tier bike-sharing companies are collapsing one after another

Coolqi is not a typical bike-sharing company, but it is not the only one to fall.

By an incomplete count, the bike-sharing companies that have announced they are shutting down are Wukong Bike, 3Vbike, Dingding Bike and Kala Bike; those struggling to return deposits are Panda Bike, Xiaoming Bike and Bluegogo.

In June, Chongqing's Wukong Bike, less than a year old, became the first bike-sharing company to announce it was folding, blaming a claimed 90% loss rate and its failure to raise money.

Also in June, 3Vbike, four months old, had to announce it was closing after claiming that nearly all of the roughly 1,000 bikes it had put out in Baoding, Langfang, Qinhuangdao and Beidaihe in Hebei and Putian in Fujian had been stolen. Kala Bike, also in Putian, Fujian, blamed a 76% loss rate and poor operations and quit earliest of all, in February, after 19 days in business.

These companies died at a strange speed, and all of them said their bikes were vanishing too fast.

Dingding Bike, founded in December 2016, simply ran off. From February, users kept reporting they could not get their 199-yuan deposits back. Its official Weibo account shut off comments on April 4 and stopped posting. By August nobody could reach the founder, the office was empty, and the company is now on the commerce bureau's list of businesses with abnormal operations.

Dingding Bike had put only 5,000 bikes on the streets of Nanjing, but that was enough to leave more than a thousand users unable to recover nearly 200,000 yuan in deposits. In September, with the bikes parked all over the place and no maintenance staff to call, Nanjing's parking facility management center decided to clear them away.

Since August, Bluegogo and Xiaoming Bike have run into refund trouble too.

Bluegogo was reported to be short of cash after a new funding round fell through. Back in March it said a Series B was imminent; more than half a year on, there is still no word. And according to AI Caijingshe, the money trouble led one of Bluegogo's suppliers, Meibang Cheye, to break off their partnership two months ago.

Several Bluegogo users told QDaily they applied for a refund the moment they saw reports that deposits were hard to get back. Two months ago Bluegogo still refunded deposits instantly; lately it takes a full seven business days for the money to arrive.

A Bluegogo executive said the company would announce new funding soon.

Xiaoming Bike, after a stream of complaints since August about deposits that would not come back, was summoned for talks by the consumer councils of Guangzhou and then Shenzhen. Xiaoming Bike said a technical problem was behind the refund trouble, and that 89% of the users who complained had already received their deposits.

Worth noting: Xiaoming Bike was founded in October 2016, and by the end of that same year its entire original founding team had left, with the company passing to Deng Yonghao, chairman of the bike brand Kailushi, its Series A investor.

In both QuestMobile's and Aurora Mobile's numbers, these two companies rank in the top ten by market share.

The companies that couldn't keep going all failed for the same immediate reason: the money ran out.

Bike-sharing raised a great deal of money, but 89.7% of it went to two companies

Mobike came to Beijing in August 2016, and both the talk about it and its download numbers shot up. Two months after launch it was the travel app ranked behind only Didi and Trip.com Group. That pulled investment into the market as well: over the following six months, at least three companies a month announced a funding round.

By an incomplete count, from January 2016 until now the bike-sharing market has taken in 39 rounds of funding worth 18.436 billion yuan. That is far more money, raised far faster, than during the ride-hailing war.

QDaily reported last year that Xingwoxing, a startup that had been supplying technical systems to public bike programs, set up Qiqi Chuxing in September 2016 and went into bike-sharing for one reason: investors were willing to burn money on it.

At the peak, close to 70 companies were in the bike-sharing business. That figure comes from the Ministry of Transport.

These companies raised more than 17 billion yuan in under a year. But 89.7% of it went to Mobike and Ofo.

Take those two out, and the rest have found it very hard to raise anything since April:

And these are only the rounds that were announced. How much of the money actually arrived has never been disclosed.

In a war fought by giving money away, experience can't beat free

As products, bike-sharing bikes do differ from one another.

At the start, neither Mobike nor Ofo gave the best ride. Mobike's bike was too heavy and its positioning imprecise; Ofo's bikes were hard to find and often broken.

Mobike, wanting a bike that would need no hand maintenance for its first four years, designed one that cost around 3,000 yuan to build and ran on solid tires. That pushed its weight to nearly 25 kilograms, and users all said it was no fun to ride.

Ofo's bikes cost 200 to 300 yuan each, but broken ones were everywhere on the street, which meant heavier labor costs later. And in the early days, with no GPS and no effective anti-theft system, Ofo's bikes were used relatively less.

Bluegogo, founded in November 2016, combined Mobike's and Ofo's designs. Its bike — and the geared model that followed — were widely called the "best to ride," at about 1,300 yuan including maintenance.

But no riding experience attracts users the way free does.

In January 2017, Bluegogo co-founder Chen Huaiyuan said that at 280 riding days a year, more than 10 rides a day at 0.5 yuan a ride would earn a bike's cost back. That calculation left out breakage, transport, logistics, app development and everything else.

For Mobike, assuming six hours of use a day and 5% annual depreciation, and counting no other costs, a bike would pay for itself in 13 months.

All of these figures were too optimistic. Last November, Mobike said that after four months operating in Guangzhou, the share of its bikes that were damaged had already hit 10%.

After that nobody talked about earning the cost back. They talked about free rides instead. Free on weekends, free on holidays, free on membership days, free on the first day back at work, free to celebrate a funding round. Then came free monthly passes, and eventually cash handed back in red envelopes.

Bike-sharing was not just unprofitable. There was barely any revenue coming through at all.

It has always been a business with thin margins. Even Zhu Xiaohu, the Ofo investor who once said "the competition will be over in three months," said at an event in late September that Mobike and Ofo would make money only if they merged.

To win users, the second-tier companies had to match the free rides and discounts. Bluegogo launched a six-month free riding pass in March; Hello Bike gave away 45 days of free rides in July. That left an already meager rental income smaller still.

Now most second-tier companies can't raise new money, and with cash tight they have had to divert deposits into the fight for the market. But that invites trouble when users try to withdraw those deposits, which in turn damages the business.

Bluegogo vice president Hu Yufei admitted in a February interview with National Business Daily that a large share of Bluegogo's deposits was held back to meet customer refund requests, and another share went into building more bikes.

As second-tier companies fell one after another and deposits got harder to recover, more people moved to companies that waive the deposit through Zhima Credit. Eleven companies now do so, among them Ofo, Yongan Xing, Bluegogo and 1bu Bike.

The more companies that switch to credit-based riding, the more of them lose their pool of deposits. At that point they no longer even have the option of diverting some of that money into production — and once growth stalls, no new deposits come in and the cash flow snaps.

That is the loop they are caught in. Bike-sharing's traffic comes from the bikes on the street. Users no longer hold up a phone and hunt for a bike on a map the way they did last year; they see a bike on the street and scan it. Which means a company has to put enough bikes on the street to begin with.

Building bikes takes money, and the cost of looking after them on the ground keeps rising.

Since April, city regulators have ordered a number of companies to stop putting out new bikes, capped the numbers, and set out specific requirements.

Bikes must carry satellite positioning devices, designated parking areas must be marked out on the ground, deposits must sit in dedicated accounts. Regulators also said that operators with serious problems with bikes left anywhere, weak on-the-ground service, and no effective response after being warned should be named publicly and have their deployments restricted.

Which means the costs on the ground — staff, and building electronic fences — have gone up again.

Second-tier bike-sharing companies can't even sell themselves now

A startup generally has two ways out: go public or get bought. Going public requires the ability to make money consistently, which no bike-sharing company has. That leaves selling. But what would be the reason to buy one?

Bike-sharing is not, at bottom, an industry with a technical moat. A bike with GPS, a maintenance system — these are not hard problems, and more than a dozen companies have built them.

Quite a few companies, Hello Bike among them, entered in the second half of 2016 and chose to put bikes only in second- and third-tier cities, taking regional markets one at a time.

If they could take a few of those markets completely, they might be worth running, or worth selling.

But Mobike and Ofo, carried by how fast they raised money, moved into second- and third-tier cities faster than most of the small companies did. By May, both had bikes in Lhasa.

And wherever something is free, there are users. Every time Mobike or Ofo entered a new city or closed a new round, they liked to subsidize riders and celebrate with free rides.

In figures BigData-Research released in April 2017, Mobike and Ofo together held 92.6% of the market, and the other 60-odd companies held 7.4%. The two of them were far larger than everyone else combined.

At bottom, bike-sharing is like ride-hailing, group buying and O2O before it: an internet business brought into being by capital. But no unprofitable new business has ever gathered this much capital in a single year. Group buying took seven years to reach the same scale; ride-hailing took four.

Capital is getting better and better at hatching big internet companies fast. What is usually left at the end is one or two of them, and the ones that couldn't raise money quickly enough are dropped in a hurry.

What becomes of the one or two left standing, too big to fail, nobody yet knows.

As for the line investors like — that a merger would bring profits: Didi and Uber China merged more than a year ago, and Meituan and Dianping longer ago than that.

Cover image: Visual Hunt